EXHIBIT 10.19
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
By and Among
QUIKSILVER, INC.
QS RETAIL, INC.,
BEACH STREET, INC.
and
JOHN THOMPSON and DIANA THOMPSON
Dated as of September 17, 2002
TABLE OF CONTENTS
Page
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ARTICLE I - THE MERGER............................................................................................ 1
1.1 The Merger...................................................................................... 1
1.2 Closing......................................................................................... 2
1.3 Effective Time.................................................................................. 2
1.4 Effects of the Merger........................................................................... 2
1.5 Articles of Incorporation; Bylaws............................................................... 2
1.6 Directors and Officers.......................................................................... 2
1.7 Merger Consideration; Conversion and Cancellation of Company Common Stock....................... 2
1.8 No Fractional Shares of Parent Common Stock...................................................... 3
1.9 Exchange of Shares.............................................................................. 4
1.10 Tax Consequences................................................................................ 4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS................................... 5
2.1 Corporate Organization.......................................................................... 5
2.2 Capitalization.................................................................................. 5
2.3 Authority; No Violation......................................................................... 5
2.4 Consents and Approvals.......................................................................... 6
2.5 Financial Statements............................................................................ 6
2.6 Absence of Undisclosed Liabilities.............................................................. 7
2.7 Absence of Certain Changes or Events............................................................ 7
2.8 Legal Proceedings............................................................................... 8
2.9 Restrictions on Business Activities............................................................. 8
2.10 Governmental Authorization...................................................................... 8
2.11 Title and Condition of Personal Property........................................................ 8
2.12 Real and Leased Property........................................................................ 9
2.13 Intellectual Property.......................................................................... 10
2.14 Taxes.......................................................................................... 10
2.15 Environmental Matters.......................................................................... 11
2.16 Customers and Suppliers; Supplies.............................................................. 12
2.17 List of Accounts............................................................................... 12
2.18 Employment Agreements.......................................................................... 12
2.19 Employee Benefit Plans......................................................................... 12
2.20 Labor Matters.................................................................................. 15
2.21 Contracts and Commitments...................................................................... 16
2.22 Absence of Breaches or Defaults................................................................ 17
2.23 Interested Party Transactions.................................................................. 18
2.24 Compliance with Applicable Law................................................................. 18
2.25 Insurance...................................................................................... 18
2.26 Brokers........................................................................................ 18
2.27 Minute Books................................................................................... 18
2.28 Accounts and Notes Receivable.................................................................. 18
2.29 Certain Payments............................................................................... 19
2.30 Accredited Investor Status..................................................................... 19
2.31 Representations Complete....................................................................... 19
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TABLE OF CONTENTS
Page
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................................ 19
3.1 Corporate Organization......................................................................... 19
3.2 Authority; No Violation........................................................................ 19
3.3 Consents and Approvals......................................................................... 20
3.4 Financial Statements and Reports............................................................... 20
3.5 Parent Common Stock............................................................................ 21
3.6 Compliance with Securities Laws............................................................... 21
3.7 Consents and Approvals......................................................................... 21
3.8 Brokers........................................................................................ 21
3.9 Compliance..................................................................................... 21
3.10 Representations Complete........................................................................ 22
3.11 Taxes.......................................................................................... 22
ARTICLE IV - ADDITIONAL AGREEMENTS............................................................................... 22
4.1 Covenants of the Company....................................................................... 22
4.2 Access to Information.......................................................................... 24
4.3 Public Disclosure.............................................................................. 24
4.4 Consents; Cooperation.......................................................................... 24
4.5 Legal Requirements............................................................................. 24
4.6 Tax Treatment.................................................................................. 24
4.7 Certifications, Agreements, and Covenants of the Company....................................... 24
4.8 Certifications, Agreements, and Covenants of Parent and Merger Sub............................. 27
4.9 Shareholder Vote............................................................................... 29
4.10 Registration Rights; NYSE Listing.............................................................. 29
4.11 Consulting Agreement........................................................................... 29
4.12 Blue Sky Laws.................................................................................. 29
4.13 Control of Operations.......................................................................... 29
4.14 Employee Matters............................................................................... 30
4.15 Covenant Not to Compete........................................................................ 30
4.16 Best Efforts and Further Assurances............................................................ 30
4.17 Landlord Consents................................................................................ 30
ARTICLE V - CONDITIONS PRECEDENT................................................................................. 31
5.1 Conditions to Each Party's Obligation to Effect the Merger..................................... 31
5.2 Conditions to Obligations of Parent and Merger Sub............................................. 31
5.3 Conditions to the Obligations of Company and Shareholders...................................... 32
ARTICLE VI - TERMINATION AND AMENDMENT........................................................................... 33
6.1 Termination.................................................................................... 33
6.2 Effect of Termination.......................................................................... 34
6.3 Amendment...................................................................................... 34
6.4 Extension; Waiver.............................................................................. 34
ARTICLE VII - GENERAL PROVISIONS................................................................................. 34
7.1 Expenses....................................................................................... 34
7.2 Notices........................................................................................ 34
7.3 Governing Law.................................................................................. 35
7.4 Severability................................................................................... 35
7.5 Assignment; Binding Effect; Benefit............................................................ 35
7.6 Headings....................................................................................... 35
7.7 Entire Agreement............................................................................... 35
7.8 Counterparts................................................................................... 36
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EXHIBITS AND SCHEDULES
EXHIBIT A Registration Rights Agreement
EXHIBIT B Consulting Agreement
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AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of September 17, 2002, by and among
QUIKSILVER, INC., a Delaware corporation ("Parent"), QS RETAIL, INC., a
California corporation and wholly-owned subsidiary of Parent ("Merger Sub"),
BEACH STREET, INC., a Utah corporation (the "Company"), and JOHN THOMPSON and
DIANA THOMPSON (individually, a "Shareholder" and collectively, the
"Shareholders"). Merger Sub and the Company are sometimes collectively referred
to herein as the "Constituent Corporations."
WHEREAS, the Boards of Directors of Parent, Merger Sub and the
Company have each determined that it is in the best interest of their respective
companies and in the best interest of their respective stockholders to
consummate the business combination transaction provided for herein in which the
Company will, subject to the terms and conditions set forth herein, merge with
and into Merger Sub (the "Merger"); and
WHEREAS, pursuant to the Merger, among other things, all of
the outstanding shares of Common Stock of the Company ("Company Common Stock")
shall be converted into shares of Common Stock of the Parent ("Parent Common
Stock").
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a tax-free reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that this Agreement shall be, and is hereby, adopted as a plan of
reorganization for purposes of Section 368(a) of the Code; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the applicable provisions of the General
Corporation Law of the State of California (the "CGCL") and the Utah Revised
Business Corporation Act of the State of Utah ("URBCA"), at the Effective Time
(as defined in Section 1.3 hereof), the Company shall merge with and into Merger
Sub. Merger Sub shall be the surviving company (hereinafter sometimes called the
"Surviving Corporation") in the Merger and shall continue its corporate
existence under the laws of the State of California. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate, and the
Surviving Corporation shall be a wholly-owned subsidiary of Parent.
1.2 Closing. The closing of the transactions contemplated hereby
(the "Closing") shall take place as soon as practicable after the satisfaction
or waiver of each of the conditions set forth in Article V hereof or at such
other time as the parties hereto agree (the "Closing Date"), provided, however,
that the parties shall use reasonable commercial efforts to effect the Closing
on or prior to September 17, 2002. The Closing shall take place at the offices
of Hewitt & O'Neil LLP, 19900 MacArthur Blvd., Suite 1050, Irvine, California or
at such other location as the parties hereto agree.
1.3 Effective Time. Subject to the terms and conditions of this
Agreement, Parent, Merger Sub, the Company, and the Shareholders shall cause the
Merger to be consummated by filing (i) a Certificate of Merger (the "Certificate
of Merger") with the Secretary of State of the State of California (the
"California Secretary of State") in such form as is required by, and executed in
accordance with the relevant provisions of, the CGCL and (ii) Articles of Merger
(the "Articles of Merger") with the State of Utah Division of Corporations and
Commercial Code (the "Division") in such form as is required by, and executed in
accordance with the relevant provisions of the URBCA. The term "Effective Time"
shall be the later of the filing of such Certificate of Merger with the
California Secretary of State and the filing of the Articles of Merger with the
Division, or at such later time as agreed in writing by Parent, Merger Sub, and
the Company and specified in the Certificate of Merger and the Articles of
Merger.
1.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in this Agreement, the Certificate of
Merger, the Articles of Merger, and the applicable provisions of the CGCL and
the URBCA. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.5 Articles of Incorporation; Bylaws. At the Effective Time, the
Articles of Incorporation of Merger Sub, as in effect at the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law. At the Effective Time, the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.6 Directors and Officers. The directors and officers of Merger
Sub immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
1.7 Merger Consideration; Conversion and Cancellation of Company
Common Stock. By virtue of the Merger without any action on the part of Parent,
Merger Sub, the Company or the Shareholders:
(a) Conversion of Company Common Stock. Subject to the terms
and conditions of this Agreement, at the Effective Time, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time and
all rights in respect thereof
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shall be converted into the right to receive (i) 29.8092 shares of Parent Common
Stock (the "Stock Consideration") and (ii) cash from Parent as set forth in
Section 1.7(b) below (the "Cash Consideration"). The Stock Consideration and
Cash Consideration are hereinafter collectively referred to as the "Merger
Consideration. Total stock consideration shall equal 298,092 shares of Parent
Company common stock.
(b) Cash Consideration Calculation. The total Cash
Consideration paid to the Shareholders shall equal the sum of (i) the Company's
cash balance, as determined consistent with the Company's past practices, as of
the Effective Time, and (ii) increased or decreased by the difference (+ of -)
between the Company's accounts payable and inventory as of the Effective Time,
all as determined and valued consistent with the Company's past practices. For
example, (i) as of the Effective Time if the Company's cash balance was
$100,000, accounts payable balance was $80,000, and the inventory balance was
$70,000, the total Cash Consideration would equal $90,000 or (i) as of the
Effective Time if the Company's cash balance was $100,000, accounts payable
balance was $70,000, and the inventory balance was $80,000, the Total Cash
Consideration would equal $110,000. The Cash Consideration shall be paid on or
before September 24, 2002. The Cash Consideration shall be divided between the
two Shareholders in accordance with their respective ownership percentages of
the Company.
(c) Right to Accounting. Subsequent to the Effective Time,
Parent and the Surviving Corporation shall allow the Shareholders, and their
agents, full access to the books and records of the Company and the Surviving
Corporation to verify the calculation and determination of the Cash
Consideration.
(d) Cancellation of Company Common Stock. At the Effective
Time, all shares of Company Common Stock converted into the right to receive the
Merger Consideration pursuant to this Article I shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
Company Common Stock shall thereafter only represent the right to receive the
Merger Consideration. Certificates previously representing shares of Company
Common Stock shall be exchanged for shares of Parent Common Stock upon surrender
of such Certificates in accordance with Section 1.9 hereof, without any
interest.
1.8 No Fractional Shares of Parent Common Stock.
(a) No certificates or scrip of shares of Parent Common Stock
representing fractional shares of Parent Common Stock or book-entry credit of
the same shall be issued upon the surrender for exchange of certificates and
such fractional share interests will not entitle the owner thereof to vote or to
have any rights of a stockholder of Parent or a holder of shares of Parent
Common Stock.
(b) Notwithstanding any other provision of this Agreement,
each holder of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a share of Parent Common Stock
multiplied by (ii) the closing price on the New York Stock Exchange for a share
of Parent
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Common Stock on the date of the Effective Time. As promptly as practicable after
the determination of the aggregate amount of cash to be paid to holders of
fractional interests, Parent shall cause the Surviving Corporation to forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
1.9 Exchange of Shares.
(a) Delivery of Merger Consideration. Immediately following
the Merger, upon surrender by the Shareholders of the certificates representing
the Company Common Stock, Parent shall cause to be issued to each Shareholder
certificates representing the number of shares of Parent Common Stock to which
such Shareholder is entitled pursuant to Section 1.7(a) above.
(b) Transfer Restrictions; Legends. The shares of Parent
Common Stock issued in the Merger shall not be transferable in the absence of an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or an exemption therefrom. In the absence of an
effective registration statement under the Securities Act, neither such shares
of Parent Common Stock nor any interest therein shall be sold, transferred,
assigned or otherwise disposed of, unless Parent shall have previously received
an opinion of counsel knowledgeable in Federal securities law, in form and
substance reasonably satisfactory to Parent, to the effect that registration
under the Securities Act is not required in connection with such disposition.
Parent shall be entitled to give stop transfer instructions to its transfer
agent with respect to such shares of Parent Common Stock in order to enforce the
foregoing restrictions.
The certificate or certificates representing the shares of
Parent Common Stock issued in the Merger shall bear the following legend
restricting the transfer thereof, in addition to any other legend required by
applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS IN EFFECT UNDER SUCH ACT, (2) SUCH
TRANSFER IS PURSUANT TO RULE 144 UNDER SUCH ACT OR (3) THE HOLDER
HEREOF FURNISHES TO THE ISSUER AN OPINION OF COUNSEL, WHICH COUNSEL AND
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION UNDER SUCH ACT IS NOT REQUIRED."
1.10 Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and
severally, represent and warrant to Parent and Merger Sub that, except as
disclosed in the disclosure schedule attached hereto (the "Company Disclosure
Schedule"):
2.1 Corporate Organization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah. The Company
has the corporate power and authority to own or lease its properties and assets
and to carry on its business as it is now being conducted, and is qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such qualification necessary. The copies of the Articles of
Incorporation and Bylaws of the Company which have previously been delivered to
Parent are true and correct copies of such documents as in effect as of the date
of this Agreement.
(b) The Company owns no equity interests in any corporation,
partnership or other entity.
2.2 Capitalization. The authorized capital stock of the Company
consists of 50,000 shares of Company Common Stock, no par value per share. As of
the date hereof, there are (i) 10,000 shares of Company Common Stock
outstanding, all of which are held by the Shareholders, and (ii) no shares of
Preferred Stock outstanding. All \of the issued and outstanding shares of
Company Common Stock were duly authorized and validly issued and are fully paid
and nonassessable and are free of any liens or encumbrances created by or
resulting from the actions of the Company, and are not subject to preemptive
rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company or
any Shareholder is a party or by which it is bound. All outstanding shares of
Company Common Stock were issued in compliance with all applicable federal and
state securities laws. The Company does not have and is not bound by any
outstanding subscriptions, options, warrants, convertible securities, calls,
commitments, agreements or obligations of any character calling for the
purchase, redemption or issuance of any shares of Company Common Stock or any
other equity security of the Company or any securities representing the right to
purchase or otherwise receive any shares of Company Common Stock or any other
equity security of the Company.
2.3 Authority; No Violation.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors and shareholders of the
Company. No other corporate proceedings on the part of the
5
Company are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
documents to be entered into in connection herewith have been duly and validly
executed and delivered by the Company and each of the Shareholders and (assuming
due authorization, execution and delivery by Parent and Merger Sub) constitute
valid and binding obligations of the Company and each of the Shareholders,
enforceable against the Company and each of the Shareholders, in accordance with
their respective terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(b) Neither the execution and delivery of this Agreement by
the Company and each of the Shareholders, nor the consummation by the Company
and each of the Shareholders of the transactions contemplated hereby, nor
compliance by the Company and each of the Shareholders with any of the terms or
provisions hereof, will (i) violate any provision of the Articles of
Incorporation or Bylaws of the Company or (ii) assuming that the consents and
approvals referred to in Section 2.4 hereof are duly obtained, (x) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any of the Shareholders or any of their
respective properties or assets, or (y) materially violate, materially conflict
with, result in a material breach of any provision of or the loss of any
material benefit under, constitute a material default (or an event which, with
notice or lapse of time, or both, would constitute a material default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
properties or assets of the Company or any of the Shareholders under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, material license, material sublicense, material lease, material agreement
or other material instrument or obligation to which the Company or any of the
Shareholders is a party, or by which the Company or any of the Shareholders or
any of their respective properties or assets may be bound or affected.
2.4 Consents and Approvals. Except for (a) the filing of the
Certificate of Merger with the California Secretary of State and the Articles of
Merger with the Division pursuant to the CGCL and Section 1107 of the URBCA, (b)
any filings to be made by Parent or Merger Sub, including but not limited to,
any federal or state securities filings to perfect the private placement
exemption of the Merger Consideration, or (c) such filings, authorizations or
approvals as may be set forth in Section 2.4 of the Company Disclosure Schedule,
no consents or approvals orders or authorizations of or filings or registrations
with any court, administrative agency or commission or other governmental or
quasi-governmental authority or instrumentality, whether in the United States of
America or otherwise (each a "Governmental Entity") or with any third party are
necessary with respect to the Company or any of the Shareholders in connection
with (1) the execution and delivery of this Agreement and (2) the consummation
of the Merger and the other transactions contemplated hereby. All such
qualifications and filings required to be made by the Company will, in the case
of qualifications, be effective as of the Effective Time and will, in the case
of filings, be made within the time prescribed by law.
2.5 Financial Statements. The Company has previously provided to
Parent true and correct copies of the Company's (a) unaudited consolidated
balance sheets of the Company at March 31, 2000, 2001 and 2002, together with
related unaudited consolidated statements of
6
operations and cash flows for the fiscal years then ended, and (b) the Company's
unaudited consolidated balance sheet as of July 31, 2002 (the "Reference Balance
Sheet") and an unaudited statement of operations for the five months ended July
31, 2002 (collectively, the "Financial Statements"). Such Financial Statements
have been prepared substantially in accordance with generally accepted
accounting principles ("GAAP") except for immaterial items noted in the Company
Disclosure Schedule. The Financial Statements fairly present the financial
condition and operating results of the Company in all material respects as of
the dates, and for the periods indicated therein, subject to normal year end
adjustments.
2.6 Absence of Undisclosed Liabilities. The Company has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent, including without limitation any obligations or liabilities as
guarantor or indemnitor of any other person, firm, partnership or corporation
("Person")) other than (i) those set forth or adequately provided for in the
Reference Balance Sheet, (ii) those incurred in the ordinary course of business
and not required to be set forth in the Reference Balance Sheet, (iii) those
incurred in the ordinary course of business since the Reference Balance Sheet
Date and consistent with past practice, and (iv) those set forth in Section 2.6
of the Company Disclosure Schedule.
2.7 Absence of Certain Changes or Events. Except as disclosed in
Section 2.7 of the Company Disclosure Schedule, since the Reference Balance
Sheet Date, the Company has conducted its business in the ordinary course
consistent with past practice, and except as contemplated by this Agreement,
there has not occurred (i) any purchase or other acquisition of, sale, lease,
disposition, or other transfer of, or mortgage, pledge or subjection to any
material encumbrance or lien on, any material asset, tangible or intangible, of
the Company, other than in the ordinary course of business; (ii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any revaluation by the Company
of any of its assets; (iii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of the Company Common
Stock, or any split-up or other recapitalization in respect of the Company
Common Stock, or any direct or indirect redemption, purchase or other
acquisition by the Company of any shares of Company Common Stock; (iv) any
material contract entered into by the Company or any amendment or termination
of, or default under, any material contract to which the Company is a party or
by which it is bound; (v) any amendment or change to the Articles of
Incorporation or Bylaws of the Company; (vi) any material increase in or
modification of the compensation or benefits payable or to become payable by the
Company to any of their respective officers, directors or employees; (vii) any
issuance, transfer, sale or pledge by the Company or any Shareholder of any
shares of Company Common Stock or other securities or of any commitment, option,
right or privilege under which the Company is or may become obligated to issue
any shares of Company Common Stock or other securities; (viii) any indebtedness
for borrowed money incurred by the Company; (ix) any loan made or agreed to be
made by the Company, nor has the Company become liable or agreed to become
liable as a guarantor with respect to any loan; (x) any waiver or compromise by
the Company of any right or rights or any payment, direct or indirect, of any
material debt, liability or other obligation, other than in the ordinary course
of business; (xi) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets, other than in the ordinary
course of business; (xii) any actual or, to the knowledge of the Company or
either of the Shareholders, threatened termination or loss of (a) any material
contract, lease, license or other agreement to which the Company was or is a
party; or (b) any
7
certificate, license or other authorization required for the continued operation
by the Company of any portion of any of its business; (xiii) any resignation of
employment of any key officer or employee of the Company, or to the knowledge of
the Company, any impending resignation of employment of any such officer or
employee; (xiv) any negotiation by any executive officer of the Company or any
agreement by the Company to do any of the things described in the preceding
clauses (i) through (xiii) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement); or
(xv) any other event or circumstance that could reasonably be expected to have a
material adverse effect on the Company.
2.8 Legal Proceedings. Except as provided in Section 2.8 of the
Company Disclosure Schedule, there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of the Company or either of the Shareholders,
threatened against the Company or any of its properties, assets or business and
to the knowledge of the Company and the Shareholders there exist no facts which
could reasonably be expected to result in any such action, suit or other
proceeding or which would challenge the validity or propriety of the
transactions contemplated by this Agreement. The Company is not in default with
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality. The foregoing includes, without limiting the generality
thereof, pending or threatened actions involving the Company's use in connection
with the Company's business of any information or techniques allegedly
proprietary to a former employee.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any current business practice of the Company, any acquisition of
property by the Company, the ability of the Company to compete with any other
person or the conduct of business by the Company as currently conducted by the
Company.
2.10 Governmental Authorization. Except as would not have a
materially adverse effect on the operations or financial conditions of the
Company, the Company has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which the Company currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of the Company's business or the holding of any such interest ((i) and
(ii) herein collectively called the "Company Authorizations"), and all of such
Company Authorizations are in full force and effect.
2.11 Title and Condition of Personal Property. The Company has good
and marketable title to all personal property owned by it that is material to
its business and reflected in the Reference Balance Sheet or acquired after the
Reference Balance Sheet Date (other than property sold or otherwise disposed of
since the Reference Balance Sheet Date in the ordinary course of business), free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character or claims thereto, except (i) the lien of current taxes not yet due
and payable, (ii) such imperfections of title, liens and easements as do not and
will not materially detract from or interfere with the use of the properties
subject thereto or affected thereby, or otherwise materially impair business
operations involving such properties, (iii) liens securing debt which is
reflected on the Reference Balance Sheet, and (iv) as set forth in Section 2.11
of the Company Disclosure
8
Schedule. The material property and equipment of the Company that is used in the
operations of its business are in all material respects in good operating
condition and repair. All material properties used in the operations of the
Company are reflected in the Reference Balance Sheet.
2.12 Real and Leased Property.
(a) The Company does not own any fee simple interest in real
property. The Company does not lease or sublease any real property other than as
set forth on Section 2.12 of the Company Disclosure Schedule. Section 2.12 of
the Company Disclosure Schedule sets forth the street address of each parcel of
real property leased or subleased by the Company (the "Leased Property"). The
Company has previously delivered to Parent a true and complete copy of all of
the lease and sublease agreements, as amended to date (the "Leases") relating to
the Leased Property. The Company enjoys a peaceful and undisturbed possession of
the Leased Property held by it. All improvements located on the Leased Property
are in a state of good maintenance and repair and in a condition adequate and
suitable for the effective conduct therein of the business conducted and
proposed to be conducted by the Company. No person other than the Company has
any right to use or occupy any part of the Leased Property, whether pursuant to
sublease, license or otherwise. The Leases are valid, binding and in full force
and effect, all rent and other sums and charges payable thereunder are current,
no notice of default or termination under any of the Leases is outstanding, no
termination event or condition or uncured default on the part of the Company or,
to the knowledge of the Company or either of the Shareholders, on the part of
the landlord or sublandlord, as the case may be, thereunder, exists under the
Leases, and to the knowledge of the Company or either of the Shareholders, no
event has occurred and no condition exists which, with the giving of notice or
the lapse of time or both, would constitute such a default or termination event
or condition. In the event that any of the Leases is a sublease, the Company, as
sublessee or sublessor, as the case may be, has obtained the required consent of
the prime landlord to such sublease, and such prime lease is in full force and
effect, there are no outstanding uncured notices of default or termination, and
no right of the Company in any such sublease conflicts with such prime lease.
All of the Leased Property is used in the conduct of the Company's business.
(b) The heating, ventilation, air conditioning, plumbing,
electrical systems and telephone systems at the Leased Property are in a
condition reasonably adequate and suitable for the effective conduct therein of
the business conducted by the Company and will be so adequate and suitable on
the Closing Date. The Company has not experienced any material interruption in
the services provided to any of the Leased Property within the last twelve (12)
months. To the knowledge of the Company or either of the Shareholders, but
without any inquiry of the applicable landlord, no landlord under the Leases has
any plans to make any material alterations to any of the Leased Property, the
construction of which would interfere with the use of any portion of the Leased
Property. To the knowledge of the Company or either of the Shareholders, but
without any inquiry of the applicable landlord, no landlord under the Leases has
any plans to make any material alterations to any of the buildings in which
Leased Property is located, the costs of which alterations would be borne in any
part by a tenant under the applicable Lease.
(c) The Company has all material permits, licenses,
franchises, approvals and authorizations (collectively, the "Real Property
Permits") of all Governmental Entities having jurisdiction over each Leased
Property and from all insurance companies and fire rating and
9
other similar boards and organizations (collectively, the "Insurance
Organizations") necessary to conduct its business as presently conducted. To the
knowledge of the Company and the Shareholders, all such Real Property Permits
required or appropriate have been lawfully issued to the Company to enable each
Leased Property to be lawfully occupied and used for all of the purposes for
which they are currently occupied and useful and are, as of the date hereof, in
full force and effect. The Company has not received or been informed by a third
party of the receipt by it of any notice from any Governmental Entity having
jurisdiction over any Leased Property or from any Insurance Organization
threatening a suspension, revocation, modification or cancellation of any Real
Property Permit or of any insurance policies and, to the knowledge of the
Company or either of the Shareholders, there is currently no basis for the
issuance of any such notice or the taking of any such action.
(d) To the knowledge of the Company or either of the
Shareholders, there are no liabilities (other than rent and other sums and
charges regularly payable) associated with any of the Leases including, without
limitation, any liability under any Environmental and Safety Law, which is or
which may become payable by the Surviving Corporation.
2.13 Intellectual Property.
(a) Section 2.13(a) of the Company Disclosure Schedule sets
forth an accurate and complete description of (i) all trademarks, service marks,
trade names, brands and copyrights of the Company; and (ii) substantially all
franchises, licenses, sublicenses, contracts, options and agreements, other than
shrink-wrap software licenses, pursuant to which the Company is authorized to
use any intellectual property not owned by the Company. The Company does not own
or use any patents.
(b) Except as set forth in Section 2.13(b) of the Company
Disclosure Schedule, the Company owns or has the right to use all intellectual
property necessary for the conduct of its business as currently conducted by it,
including, without limitation, all network operating system and database
softwares or other intellectual property used by the Company.
(c) Except for third party licenses listed in Section 2.13(c)
of the Company Disclosure Schedule, the Company is the sole and exclusive owner
of its Intellectual Property including, but not limited to, those listed or
described on the Company Disclosure Schedule, or has the right to the use
thereof for the material covered thereby in connection with the services or
products in respect to which they have been or are now being used.
(d) To the knowledge of the Company or either of the
Shareholders, except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, there has been no unauthorized use, disclosure, infringement or
misappropriation of any material intellectual property rights of the Company,
any trade secret material to the Company, or any material intellectual property
right of any third party to the extent licensed by or through the Company, by
any third party, including any employee of the Company.
2.14 Taxes.
(a) The Company has duly and timely filed (including
applicable extensions granted without penalty) all material Tax Returns (as
hereinafter defined) required to be filed at
10
or prior to the Effective Time, and such Tax Returns are true and correct in all
material respects, and the Company has paid in full or made adequate provision
in the Financial Statements for all material Taxes (as hereinafter defined)
shown to be due on such Tax Returns. As of the date hereof (i) the Company has
not requested any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed and no request for
waivers of the time to assess any Taxes are pending or outstanding, (ii) no
claim for Taxes has become a lien against the property of the Company or is
being asserted against the Company other than liens for Taxes not yet due and
payable, (iii) no audit of any Tax Return of the Company is being conducted by a
Tax authority, (iv) no extension of the statute of limitations on the assessment
of any Taxes has been granted to the Company and is currently in effect, and (v)
there is no agreement, contract or arrangement to which the Company is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. The Company has not been or
will be required to include any adjustment in taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(b) For the purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) filed or required to be filed with a
Governmental Entity with respect to Taxes.
2.15 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
federal, state, local or foreign laws, ordinances, codes, regulations, rules,
policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require
reporting with respect to, or list or define air, water, groundwater, solid
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.
(ii) "Property" shall mean all real property leased
or owned by the Company either currently or in the past.
(iii) "Facilities" shall mean all buildings and
improvements on the Property of the Company.
11
(b) (i) the Company has not received notice (oral or
written) of any noncompliance of the Facilities or its past or present
operations with Environmental and Safety Laws; (ii) no notices, administrative
actions or suits are pending or, to the knowledge of the Company or either of
the Shareholders, threatened relating to a violation of any Environmental and
Safety Laws; (iii) to the Company's and Shareholders' knowledge, the Company's
uses of and activities within the Facilities currently comply with all
Environmental and Safety Laws; and (iv) the Company has all the permits and
licenses required to be issued and are in full compliance with the terms and
conditions of those permits.
2.16 Customers and Suppliers; Supplies. Except as indicated in
Section 2.16 of the Company Disclosure Schedule, all supplies and services
necessary for the conduct of the business of the Company as presently conducted,
may be obtained from alternate sources on terms and conditions comparable to
those presently available to the Company, and no facts, circumstances or
conditions exist which create a reasonable basis for believing that the Company
will be unable to continue to procure the supplies and services necessary to
conduct its business on substantially the same terms and conditions as such
supplies and services are currently procured.
2.17 List of Accounts. Set forth in Section 2.17 of the Company
Disclosure Schedule is: (a) the name of each bank or other institution in which
the Company maintains an account (cash, securities or other) or safe deposit
box; (b) the name, phone number and telefax number of the contact person at such
bank or institution and (c) the account number of the relevant account, a
description of the type of account and a list of the authorized signatories on
such account.
2.18 Employment Agreements. Section 2.18 of the Company Disclosure
Schedule contains the names, start dates, contracts dates, job descriptions,
annual salary rates and other compensation of all officers, directors and
employees of the Company or consultants being paid more than $20,000 a year by
the Company (including compensation paid or payable by the Company under the
Company Employee Plans). Section 2.18 of the Company Disclosure Schedule
contains a list of all employee policies, employee manuals or other written
statements of rules or policies as to hiring practices and procedures, working
conditions, vacation and sick leave, a complete copy of each of which has been
made available to Parent. Except as set forth in Section 2.18 of the Company
Disclosure Schedule, there are no employment, consulting, severance or
indemnification arrangements, agreements or understandings between the Company
and any officer, director, consultant or employee including, without limitation,
any contracts to employ executive officers, any severance, change in control or
similar arrangements with any officers, employees or agents of the Company that
will result in any obligation (absolute or contingent) of the Company to make
any payment to any officer, employee or agent of the Company following either
the consummation of the transactions contemplated hereby, termination of
employment, or both ("Company Employment Agreements").
2.19 Employee Benefit Plans.
(a) Section 2.19(a) of the Company Disclosure Schedule
lists, with respect to the Company (i) all material employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained, sponsored or
12
contributed to or required to be contributed to by the Company, (ii) each loan
to a non-officer employee, loans to officers and directors and any stock option,
stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of the Company and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of the Company of
greater than $10,000 remain for the benefit of, or relating to, any present or
former employee, consultant or director of the Company (together, the "Company
Employee Plans"). There is no trade or business (whether or not incorporated)
which is treated as a single employer with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
(b) The Company has furnished to Parent a copy of the
Company Employee Plans and related plan documents, to the extent reduced to
writing (including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents, and, to the
extent still in its possession, any material employee communications relating
thereto) and has, with respect to each Company Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. The Company has, with respect to any Company Employee
Plan intended to be qualified under Section 401(a) of the Code, either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination. The
Company has also furnished Parent with the most recent Internal Revenue Service
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a).
(c) Except as disclosed in Section 2.19(c) of the Company
Disclosure Schedule, to the Company's and either of the Shareholder's knowledge,
(i) none of the Company Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Company Employee Plan, for which no exemption
exists; (iii) each Company Employee Plan has been administered substantially in
accordance with its terms and in substantial compliance with the requirements
prescribed by any applicable statutes, rules and regulations (including
applicable provisions of ERISA and the Code); (iv) the Company has performed
substantially all obligations required to be performed by them under, are not in
any material respect in default under or violation of, and have no knowledge of
any material default or violation by any other party to, any of the Company
Employee Plans; (v) the Company is not subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Company Employee
13
Plans, other than obligations for the payment of benefits in the normal
operation of the Plan; (vi) all material contributions required to be made by
the Company to any Company Employee Plan have been made on a timely basis and
any accruals required by GAAP for contributions to each Company Employee Plan
for the current plan years are reflected on the financial statements of the
Company; (vii) with respect to each Company Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred with respect to any Company Employee Plan subject to Title IV
of ERISA; (viii) the Company has not incurred any liability under Title IV of
ERISA or Section 412 of the Code and (ix) no Company Employee Plan which is
subject to Title IV or ERISA has an "unfunded benefit liability" within the
meaning of Section 4001(a)(18) of ERISA. With respect to each Company Employee
Plan subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, the Company has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Company Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the knowledge of the Company
or either of the Shareholders is threatened, against or with respect to any such
Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. The Company has no liability (including current or
potential withdrawal liability) with respect to any "multiemployer plan" as such
term is defined in Section 3(37) of ERISA. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after Closing in accordance with
its terms without material liability (other than expenses typically incurred in
a termination event). The consummation of the transactions contemplated by this
Agreement will not entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, except as
provided by this Agreement or the schedules attached hereto.
(d) With respect to each Company Employee Plan, the Company
has substantially complied with (i) the applicable health care continuation and
notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the proposed regulations thereunder, (ii) the applicable
requirements of the Family Leave Act of 1993 and the regulations thereunder and
(iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996.
(e) Consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, or (ii)
increase the amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation
or announcement (whether or not written) by the Company relating to, or change
in participation or coverage under, any Company Employee Plan which would
increase the expense of maintaining such Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal year included in
the Company's financial statements, other than increases resulting from premium
14
increases or the employment of additional employees, in each case in the
ordinary course of business.
2.20 Labor Matters. Except as set forth in Section 2.20 of the
Company Disclosure Schedule, (a) the Company is not, and has not been, a party
to or otherwise bound by or to the Company's or either of the Shareholder's
knowledge threatened with any collective bargaining agreement or other labor
union contract and to the knowledge of the Company or either of the Shareholders
currently there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company; (b) there are no controversies, strikes, slowdowns, work
stoppages or labor disturbances pending or to the knowledge of the Company or
either of the Shareholders threatened between the Company and any of its
employees, and the Company has not experienced any such controversy, strike,
slowdown, work stoppage or labor disturbances within the past three years; (c)
there are no unfair labor practice complaints pending against the Company before
the National Labor Relations Board or any other Governmental Entity or any
current union representation questions involving employees of the Company; (d)
there are no pending claims against the Company under any workers' compensation
plan or policy or for long-term disability; (e) to the knowledge of the Company
or either of the Shareholders, the Company has no obligations under COBRA with
respect to any former employees or qualifying beneficiaries thereunder; (f) the
Company is currently in compliance with all applicable Laws relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by the appropriate Governmental Entity and has withheld and paid to the
appropriate Governmental Entity or is holding for payment not yet due to such
Governmental Entity all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (g) the Company has paid
in full to all its employees or adequately accrued for in accordance with GAAP
all wages, salaries, commissions, bonuses, benefits and other compensation due
to or on behalf of such employees, including all compensation owing and due for
over-time work; (h) the Company has provided its employees with all relocation
benefits, stock options, bonuses and incentives, and all other compensation that
such employee has earned up through the date of this Agreement or that such
employee was otherwise promised in their employment agreements with the Company;
(i) there is no pending claim with respect to payment of wages, salary or
overtime pay that has been asserted or is now pending or to the knowledge of the
Company or either of the Shareholders threatened before any Governmental Entity
with respect to any Persons currently or formerly employed by the Company; (j)
the Company is not a party to, or otherwise bound by, any consent decree with,
or citation by, any Governmental Entity relating to employees or employment
practices; (k) there is no charge or proceeding with respect to a violation of
any occupational safety or health standards that to the Company's or either of
the Shareholder's knowledge has been asserted or is now pending or to the
knowledge of the Company or either of the Shareholders threatened with respect
to the Company; (l) there is no charge of discrimination in employment or
employment practices, for any reason, including, without limitation, age,
gender, race, religion or other legally protected category, which has been
asserted or is now pending or to the knowledge or the company or either of the
Shareholders threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Entity in any jurisdiction in which the
Company has employed or currently employs any Person; (m) the Company is in
compliance in all material respects with the requirements of the Americans With
Disabilities Act and any similar law of any
15
Government Entity; and (n) the Company is in compliance with the requirements of
the Workers Adjustment and Retraining Notification Act ("WARN") and each has no
liabilities pursuant to WARN.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director, employee or other service
provider of the Company or any other ERISA Affiliate, (ii) increase any benefits
otherwise payable by the Company or (iii) result in the acceleration of the time
of payment or vesting of any such benefits, or any options or warrants to
purchase Company capital stock, or any increase in the amount of compensation of
benefits due any such person.
2.21 Contracts and Commitments. Section 2.21 of the Company
Disclosure Schedule contains a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements) of
the following categories to which the Company is a party or by which it is bound
as of the date of this Agreement:
(a) labor contracts;
(b) manufacturing, distribution, franchise, license, sales,
agency or advertising contracts;
(c) contracts which require the payment in excess of $10,000
per year for (i) the purchase of inventory, materials, supplies or equipment
which are not cancelable (without material penalty, cost or other liability)
within one (1) year, (ii) management, consulting, service or other similar
contracts, (iii) advertising or marketing agreements or arrangements, and (iv)
other contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $10,000 which are not cancelable
(without material penalty, cost or other liability) within ninety (90) days,
other than purchase orders made in the ordinary course of business consistent
with past practice;
(d) promissory notes, loans, agreements, indentures,
evidences of indebtedness or other instruments proving for the lending of money,
whether as borrower, lender or guarantor;
(e) contracts (other than Leases) containing covenants
limiting the freedom of the Company to engage in any line of business or compete
with any Person or operate at any location;
(f) joint venture or partnership agreements or joint
development or similar agreements;
(g) agreement, contract or other arrangement with (i) the
Company or any affiliate of the Company or (ii) any current or former officer,
director or employee of the Company or any affiliate of the Company (other than
non-compete or intellectual property agreements);
16
(h) material lease or similar agreement with any person
under which (i) the Company is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible property owned by any person or (ii) the
Company is a lessor or sublessor of, or makes available for use by any person,
any tangible personal property owned or leased by the Company, in any such case
which has an aggregate future liability or receivable, as the case may be, and
is not terminable by the Company by notice of not more than sixty (60) days;
(i) contracts or other instruments (including so-called
take-or-pay or keepwell agreements) under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(ii) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(j) contracts or other instruments under which the Company
has, directly or indirectly, made any advance, loan, extension of credit or
capital contribution to, or other investment in, any person involving aggregate
payments in excess of $25,000;
(k) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any property of the
Company;
(l) agreement or instrument providing for indemnification of
any person with respect to liabilities relating to any current or former
business of the Company, or any predecessor person; and
(m) any exclusive retainer agreement or arrangement with
attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisors.
True copies of the written contracts identified in Section
2.21 of the Company Disclosure Schedule have been made available to Parent.
2.22 Absence of Breaches or Defaults. The Company is not, and, to
the knowledge of the Company or either of the Shareholders, no other party is,
in material default under, or in material breach or violation of, any contract
to which the Company is a party, including, without limitation, those identified
on Section 2.21 of the Company Disclosure Schedule and, to the knowledge of the
Company or either of the Shareholders, no event has occurred which, with the
giving of notice or passage of time or both would constitute a material default
under any contract identified on Section 2.21 of the Company Disclosure
Schedule. Other than contracts which have terminated or expired in accordance
with their terms, each of the contracts identified on Section 2.21 of the
Company Disclosure Schedule is valid, binding and enforceable in accordance with
its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered on a proceeding in equity or at law)) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, such contracts will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby. No event has occurred which either entitles, or would, on notice or
lapse of time or both, entitle the holder of any
17
indebtedness for borrowed money affecting the Company (except for the execution
or consummation of this Agreement) to accelerate, or which does accelerate, the
maturity of any indebtedness affecting the Company, except as set forth in
Section 2.22 of the Company Disclosure Schedule.
2.23 Interested Party Transactions. Except as set forth in Section
2.23 of the Company Disclosure Schedule, the Company is not indebted to any
director, officer, employee or agent of the Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to the Company. Except as set forth in Section 2.23 of
the Company Disclosure Schedule, no affiliate of the Company or any Shareholder
has, or has had, any interest in any material property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to the
Company.
2.24 Compliance with Applicable Law. The Company holds all material
licenses, franchises, permits and authorizations which are necessary for it to
engage in the business currently conducted by it. The Company has complied with
and is not in default in any respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating to
the Company except where the failure to do so would not have a material adverse
effect on the Company and the Company has not received notice of any violations
of any of the above.
2.25 Insurance. Section 2.25 of the Company Disclosure Schedule
sets forth a true and complete list of all insurance policies providing
insurance coverage of any nature to the Company. To the knowledge of the Company
and the Shareholders, such policies are sufficient for compliance by the Company
with all requirements of law and all material agreements to which the Company is
a party or by which any of its assets are bound. To the knowledge of the Company
and the Shareholders, all of such policies are in full force and effect and are
valid and enforceable, and the Company has complied with all material terms and
conditions of such policies, including premium payments. Except as set forth on
the Company Disclosure Schedule, none of the insurance carriers has indicated to
the Company an intention to cancel any such policy. The Company has no claim
pending against any of the insurance carriers under any of such policies and
neither the Company nor either Shareholder has knowledge of any actual or
alleged occurrence of any kind which may give rise to any such claim.
2.26 Brokers. Neither the Company nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
2.27 Minute Books. The minute books of the Company made available
to Parent contain a complete and accurate summary of all meetings of directors
and shareholders or actions by written consent since the time of incorporation
of the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately.
2.28 Accounts and Notes Receivable. Subject to any reserves set
forth on the Reference Balance Sheet, the accounts receivable and the notes
receivable shown on the Reference Balance Sheet represent and will represent
bona fide claims arising in the ordinary course of business against debtors for
sales and other charges, and are not subject to discount
18
except for normal cash and immaterial trade discounts. To the knowledge of the
Company or either of the Shareholders, and subject to any reserves set forth on
the Reference Balance Sheet, such accounts receivable and notes receivable are
collectible by the Company in the ordinary course of business. The amount
carried for doubtful accounts and allowances disclosed in the Reference Balance
Sheet is sufficient to provide for any losses which may be sustained on
realization of the accounts receivable and notes receivable.
2.29 Certain Payments. Since January 1, 1997, to the knowledge of
the Company or either of the Shareholders, neither the Company nor any officer,
agent or employee of the Company or, to the knowledge of the Company or either
of the Shareholders, any other person affiliated with or acting on behalf of the
Company has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment in violation of
any applicable law, rule or regulation to any person, private or public,
regardless of form, whether in money, property, or services, or (b) established
or maintained any fund or material asset that has not been recorded in the books
and records of the Company.
2.30 Accredited Investor Status. Each of the Shareholders is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act of 1933, as amended.
2.31 Representations Complete. None of the representations or
warranties made by the Company or Shareholders herein or in any Schedule hereto,
including the Company Disclosure Schedule, or certificate furnished by the
Company pursuant to this Agreement, contains any untrue statement of a material
fact.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent
and warrant to the Company that, except as set forth in the disclosure schedule
attached hereto (the "Parent Disclosure Schedule"):
3.1 Corporate Organization. Each of Parent and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation. Parent and each of its subsidiaries have the
corporate power and authority to own or lease their respective properties and
assets and to carry on their respective businesses as they are now being
conducted, and are duly qualified to do business in each jurisdiction in which
the nature of the business conducted by them or the character or location of the
properties and assets owned or leased by them makes such qualification
necessary.
3.2 Authority; No Violation.
(a) Each of Parent and Merger Sub has the requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The Board of Directors of Parent has unanimously approved this Agreement
and the Merger and all transactions contemplated hereby. The Board of Directors
and the stockholder of Merger Sub have approved this Agreement and
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the Merger and all transactions contemplated hereby. No other corporate
proceedings on the part of Parent or Merger Sub are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and all other agreements and documents to be entered into in connection herewith
have been duly and validly executed and delivered by Parent and Merger Sub and
(assuming due authorization, execution and delivery by the Company and
Shareholders) constitute valid and binding obligations of Parent and Merger Sub,
enforceable against each of them, in accordance with their terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by
Parent and Merger Sub, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby, nor compliance by Parent and Merger Sub with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate or Articles of Incorporation or Bylaws of Parent or Merger Sub, or
(ii) assuming that the consents and approvals referred to in Section 3.3 hereof
are duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Parent or Merger Sub
or any of their respective properties or assets, or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of Parent or Merger Sub under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent or Merger Sub is a party, or by which either of them
or any of their respective properties or assets may be bound or affected.
3.3 Consents and Approvals. Except for (a) the filing of the
Certificate of Merger with the California Secretary of State and the Articles of
Merger with the Division pursuant to the CGCL and Section 1107 of the URBCA, (b)
any federal or state securities filings to be made by Parent or Merger Sub to
perfect the private placement exemption of the Merger Consideration, which shall
be timely made, (c) the listing of the Parent Common Stock on the New York Stock
Exchange, (d) such filings, authorizations or approvals as may be set forth in
Section 3.4 of the Parent Disclosure Schedule, no consents or approvals orders
or authorizations of or filings or registrations with any Governmental Entity or
with any third party are necessary with respect to the Parent or Merger Sub in
connection with (1) the execution and delivery of this Agreement and (2) the
consummation of the Merger and the other transactions contemplated hereby. All
such qualifications and filings required to be made by Parent or Merger Sub
will, in the case of qualifications, be effective as of the Effective Time and
will, in the case of filings, be made within the time prescribed by law.
3.4 Financial Statements and Reports. Parent has timely filed all
required forms, reports, statements and documents with the Securities and
Exchange Commission (the "Commission") all of which have complied in all
material respects with all applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Parent has
delivered or made available to Company and the Shareholders true and complete
copies of (i) Parent's Annual Report on Form 10-K for the fiscal year ended
20
October 31, 2001, (ii) its proxy statement relating to Parent's annual
stockholders meeting held March 26, 2002, and (iii) all other forms, reports,
statements and documents filed by Parent with the Commission since October 31,
2001 (collectively, the "Parent Reports"). As of their respective dates, the
Parent Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Parent included
or incorporated by reference in the Parent Reports were prepared in accordance
with GAAP applied on a consistent basis (except as otherwise stated in such
financial statements or, in the case of audited statements, the related report
thereon of independent certified public accounts), and present fairly the
financial position and results of operations, cash flows and of changes in
stockholders' equity of Parent and its consolidated subsidiaries as of the dates
and for the periods indicated, subject, in the case of unaudited interim
financial statements, to normal year-end audit adjustments, none of which either
singly or in the aggregate are or will be material, and except that the
unaudited interim financial statements do not contain all of the disclosures
required by GAAP.
3.5 Parent Common Stock. The shares of Parent Common Stock to be
issued to the holders of Company Common Stock as contemplated hereunder are duly
authorized, and when issued pursuant to the terms of this Agreement, will be
validly issued, fully paid, non-assessable and not subject to any preemptive
rights.
3.6 Compliance with Securities Laws. Based upon the representation
that Shareholders are "accredited investors" as that term is defined within the
meaning of Regulation D promulgated under the Securities Act of 1933, as
amended, the Stock Consideration will be issued to the Shareholders in
compliance with the applicable exemptions from (i) the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended, and
(ii) the registration and qualification requirements of all applicable
securities laws of the states of the United States.
3.7 Consents and Approvals. Neither the execution and delivery of
this Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) registrations or other actions
required under federal and state securities laws as are contemplated by this
Agreement or (ii) consents or approvals of any Governmental Entity set forth in
Section 3.5 to the Parent Disclosure Schedule.
3.8 Brokers. Neither Parent, Merger Sub, nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement.
3.9 Compliance. Parent is, or will timely be in all material
respects, in compliance with all current and proposed listing and corporate
governance requirements of the New York Stock Exchange, and is in compliance in
all material respects, and will continue to remain in compliance following the
Effective Time, with all rules, regulations, and requirements of the
Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission.
21
3.10 Representations Complete. None of the representations or
warranties made by Parent or Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by the Parent
or Merger Sub pursuant to this Agreement, contains any untrue statement of a
material fact.
3.11 Taxes. The Parent has duly and timely filed (including
applicable extensions granted without penalty) all material Tax Returns (as
hereinafter defined) required to be filed at or prior to the Effective Time, and
such Tax Returns are true and correct in all material respects, and the Parent
has paid in full or made adequate provision in its financial statements included
in the Parent Reports for all material Taxes (as hereinafter defined) shown to
be due on such Tax Returns. As of the date hereof (i) the Parent has not
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year which have not since been filed and no request for waivers of
the time to assess any Taxes are pending or outstanding, (ii) no claim for Taxes
has become a lien against the property of the Parent or is being asserted
against the Parent other than liens for Taxes not yet due and payable, (iii) no
known audit of any Tax Return of the Parent is being conducted by a Tax
authority, (iv) no extension of the statute of limitations on the assessment of
any Taxes has been granted to the Parent and is currently in effect, and (v)
there is no agreement, contract or arrangement to which the Parent is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. The Parent has not been or will
be required to include any adjustment in taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Covenants of the Company. During the period from the date of
this Agreement, and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, as identified in Section 4.1 of the
Company Disclosure Schedule, or with the prior written consent of Parent, the
Company shall carry on its business in the ordinary course consistent with past
practice. Without limiting the generality of the foregoing, or as otherwise
contemplated by this Agreement, as identified in Section 4.1 of the Company
Disclosure Schedule, or consented to in writing by Parent, the Company shall
not:
(a) declare or pay any dividends on, or make other
distributions in respect of, any of the Company Common Stock;
(b) (i) repurchase, redeem or otherwise acquire any shares
of its capital stock, or any securities convertible into or exercisable for any
shares of such capital stock, (ii) split, combine or reclassify any shares of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
22
(c) amend its Articles of Incorporation, Bylaws or other
similar governing documents;
(d) make any capital expenditures other than those which are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair;
(e) enter into any new line of business;
(f) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in this Agreement not being satisfied;
(h) change its methods of accounting in effect at March 31,
2002;
(i) (i) except as contemplated by Section 5.2(h) or required
by applicable law or as required to maintain qualification pursuant to the Code,
adopt, amend, or terminate any employee benefit plan (including, without
limitation, any Company Employee Plan) or any agreement, arrangement, plan or
policy between the Company and one or more of its current or former directors,
officers or employees, (ii) except for normal increases in the ordinary course
of business consistent with past practice, bonuses to certain employees of the
Company to be paid immediately prior to the consummation of the Merger, or as
required by applicable law, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any Company Employee Plan or agreement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares);
(j) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(k) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(l) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company is a party or
by which the Company or any of its properties are bound, other than the renewal
in the ordinary course of business of any lease the term of which expires prior
to the Closing Date; or
(m) agree to do any of the foregoing.
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4.2 Access to Information. Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall
afford to the officers, employees, accountants, counsel and other
representatives of Parent, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, the Company shall make available to
Parent all information concerning its business, properties and personnel as
Parent may reasonably request. All information furnished to Parent pursuant to
this Section 4.2 shall be subject to, and Parent shall hold all such information
in confidence in accordance with, the provisions of the confidentiality
agreement, dated January 25, 2002 (the "Confidentiality Agreement"), between
Parent and the Company.
4.3 Public Disclosure. Unless otherwise permitted by this
Agreement, Parent and the Company shall consult with each other before issuing
any press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.
4.4 Consents; Cooperation. Each of Parent, Merger Sub and the
Company shall promptly apply for or otherwise seek, and use its best efforts to
obtain, all consents and approvals required to be obtained by it for the
consummation of the Merger, and shall use commercially reasonable efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
4.5 Legal Requirements. Each of Parent, Merger Sub and the Company
will take all reasonable actions necessary to comply promptly with all legal
requirements which have been or which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
4.6 Tax-Free Reorganization Treatment. The parties hereto intend
that the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. Each of the parties hereto shall, and shall cause its
respective subsidiaries to, use its commercially reasonable efforts to cause the
Merger to so qualify. The parties hereto shall report the Merger in all Tax
Returns and other filings consistent with a reorganization within the meaning of
Section 368(a) of the Code.
4.7 Certifications, Agreements, and Covenants of the Company. The
Company certifies, agrees, and covenants with Parent and Merger Sub as follows:
24
(a) The Merger will be carried out strictly in accordance
with the terms of this Agreement, and none of the material terms and conditions
thereof have been or will be waived or modified.
(b) The consideration to be received in the Merger by the
Shareholders of the Company was the result of arm's length bargaining between
the managements of Parent and the Company. The fair market value of the Merger
Consideration and any cash received in lieu of fractional shares to be received
by each Shareholder of the Company will be approximately equal to the fair
market value of the Company Common Stock surrendered in the Merger.
(c) In the Merger, the holders of Company Common Stock will
receive, in exchange for their Company Common Stock, the Merger Consideration.
Except for the consideration described herein, no cash or other property
originating with Parent or its affiliates has been or will be paid to the
holders of Company Common Stock in exchange for Company Common Stock. As of the
Effective Time, the Parent Common Stock issued in the Merger will have a value
that is not less than 50% of the aggregate value of the Merger Consideration as
of such time.
(d) The payment of cash in lieu of fractional shares of
Parent Common Stock in the Merger is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares, if any, and
does not represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to holders of Company Common Stock
instead of issuing fractions of Parent Common Stock will not exceed one percent
(1%) of the total consideration that will be issued in the Merger to holders of
Company Common Stock in exchange for their Company Common Stock.
(e) Prior to and in connection with the Merger, no shares of
Company Common Stock have been or will be (i) redeemed by the Company, (ii)
acquired by a person related to the Company (within the meaning of Treasury
Regulation Section 1.368-1(e)(3) determined without regard to Treasury
Regulation Section 1.368-1(e)(3)(i)(A)) for consideration other than Parent
Common Stock or Company Common Stock, or (iii) the subject of any extraordinary
distribution by the Company.
(f) There is no plan or intention on the part of either of
the Shareholders to sell, exchange or otherwise dispose of any Parent Common
Stock to be received in the Merger by such holder directly or indirectly to
Parent or to a person related to Parent (within the meaning of Treasury
Regulation Section 1.368-1(e)(3)) for consideration other than Parent Common
Stock.
(g) No shareholders of the Company will elect appraisal or
dissenters' rights.
(h) The Company has no outstanding equity interests other
than as described in Section 2.2 of the Merger Agreement. At the Effective Time,
and following the Merger, the Company will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in the Company.
(i) The Company has no plan or intention to issue additional
shares of its stock.
25
(j) The Company has not agreed to assume, nor will it
directly or indirectly assume, any expense or other liability, whether fixed or
contingent, of any holder of Company Common Stock.
(k) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(l) The Company is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(m) There is no inter-corporate indebtedness existing
between Parent and the Company or between Merger Sub and the Company that was
issued, acquired or will be settled at a discount.
(n) None of the compensation to be received by any
shareholder-employee of the Company in the Merger will be separate consideration
for, or allocable to, any of such person's shares of Company Common Stock; none
of the Parent Common Stock to be received by any shareholder-employee of the
Company will be separate consideration for, or allocable to, any past or future
services, and the compensation to be paid to any shareholder-employee after the
Merger will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
(o) In connection with the Merger, the Company has not sold,
transferred or otherwise disposed of any of its assets as would prevent Parent
from either continuing the historic business of the Company or using a
significant portion of the Company's historic business assets in a business
following the Merger, both within the meaning of Treasury Regulation Section
1.368-1(d).
(p) On the date of the Merger, the fair market value of the
assets of the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(q) In the Merger, Merger Sub will acquire at least 90% of
the fair market value of the net assets and at least 70% of the fair market
value of the gross assets held by the Company immediately prior to the Merger.
For purposes of this representation, amounts paid by the Company to shareholders
who receive cash or other property in the Merger, amounts used by the Company to
pay its reorganization expenses and those of its shareholders, and all
redemptions and distributions (except for regular, normal dividends) made by the
Company will be included as assets of the Company immediately prior to the
Merger.
(r) All options, warrants or rights to acquire shares of
Company Common Stock were issued with an exercise price no less than fair market
value at the time of issue.
(s) The Merger is being affected for bona fide business
reasons.
(t) None of the Company's preferred stock is issued or
outstanding.
26
(u) The liabilities of the Company assumed by Merger Sub and
the liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of business.
(v) The Company will not take any position on any federal,
state, or local income or franchise tax return, or take any tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization for federal income tax purposes, unless otherwise required by a
"determination" (as defined by Section 1313(a)(1) of the Code) or by a change in
law after the date hereof.
(w) The Merger Agreement (including all exhibits and
attachments thereto) represents the full and complete agreement between Parent,
Merger Sub, Company, and the Shareholders regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
4.8 Certifications, Agreements, and Covenants of Parent and Merger
Sub. Parent and Merger Sub certify, agree, and covenant to the Company as
follows:
(a) The Merger will be carried out strictly in accordance
with the terms of this Agreement, and none of the material terms and conditions
thereof have been or will be waived or modified.
(b) The consideration to be issued in the Merger to the
Shareholders of the Company was the result of arm's length negotiation between
the managements of Parent and the Company. The fair market value of the Merger
Consideration and any cash in lieu of fractional shares to be received by each
of the Shareholders of the Company will be approximately equal to the fair
market value of the Company Common Stock surrendered in the Merger.
(c) In the Merger, the holders of Company Common Stock will
receive, in exchange for their Company Common Stock, the Merger Consideration.
Except for the consideration described herein, no cash or other property
originating with Parent or its affiliates has been or will be paid to the
holders of Company Common Stock in exchange for Company Common Stock. As of the
Effective Time, the Parent Common Stock issued in the Merger will have a value
that is not less than 50% of the aggregate value of the Merger Consideration as
of such time.
(d) The payment of cash in lieu of fractional shares of
Parent Common Stock in the Merger is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares, if any, and
does not represent separately bargained-for consideration.
(e) No shareholders of the Company will elect appraisal or
dissenters rights.
(f) In the Merger, Merger Sub will acquire at least 90% of
the fair market value of the net assets and at least 70% of the fair market
value of the gross assets held by the Company immediately prior to the Merger.
For purposes of this representation, amounts paid by the Company to shareholders
who receive cash or other property in the Merger, amounts used by the Company to
pay its reorganization expenses and those of its shareholders, and all
27
redemptions and distributions (except for regular, normal dividends) made by the
Company will be included as assets of the Company immediately prior to the
Merger.
(g) Following the Merger, Parent will either continue the
historic business of the Company or use a significant portion of the Company's
historic business assets in a business, both within the meaning of Treasury
Regulation Section 1.368-1(d).
(h) Parent has no plan or intention to: (a) liquidate Merger
Sub; (b) merge Merger Sub with or into another corporation; (c) sell, exchange,
transfer or otherwise dispose of any stock of Merger Sub except for transfers
described in Revenue Ruling 2001-24, 2001-22 I.R.B. 1290; or (d) cause Merger
Sub to sell, exchange, transfer or otherwise dispose of any of the assets of the
Company acquired in the Merger, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the Code or
Treasury Regulations Section 1.368-2(k)(1).
(i) In connection with the Merger, neither Parent nor any
person related to Parent (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) will purchase, exchange, redeem or otherwise acquire (directly or
indirectly) any Parent Common Stock issued to holders of Company Common Stock in
the Merger for consideration other than the Merger Consideration, except for (i)
cash paid in lieu of fractional shares of Parent Common Stock pursuant to the
Merger and (ii) open market purchases pursuant to Parent's stock repurchase
program, if any, consistent with Revenue Ruling 99-58, 1999-2 C.B. 701.
(j) Parent and Merger Sub will pay their respective
expenses, if any, incurred in connection with the Merger, and will not pay any
of the expenses of the Company or of the Shareholders of the Company incurred in
connection with the Merger. Neither Parent nor Merger Sub has agreed to assume,
nor will it directly or indirectly assume, any expense or other liability,
whether fixed or contingent, of any holder of Company Common Stock.
(k) Neither Parent nor any person related to Parent (within
the meaning of Treasury Regulation Section 1.368-1(e)(3)) has owned during the
past five (5) years any shares of stock of the Company.
(l) Neither Parent nor Merger Sub is an investment company
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(m) Before the Merger, Parent will own one hundred percent
(100%) of Merger Sub. No stock or securities of Merger Sub will be issued in the
Merger.
(n) Parent has no plan or intention to cause Merger Sub to
issue additional shares of stock of Merger Sub that would result in Parent
losing control of Merger Sub within the meaning of Section 368(c) of the Code.
Prior to and immediately following the Merger, Merger Sub will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Merger Sub that, if
exercised or converted, would affect Parent's ownership or retention of control
of Merger Sub within the meaning of Section 368(c) of the Code.
28
(o) There is no inter-corporate indebtedness existing
between Parent and the Company or between Merger Sub and the Company that was
issued, acquired or will be settled at a discount.
(p) None of the compensation to be received by any
shareholder-employee of the Company in the Merger will be separate consideration
for, or allocable to, any of such person's shares of Company Common Stock; none
of the shares of Parent Common Stock to be received by any shareholder-employee
of the Company will be separate consideration for, or allocable to, any past or
future services; and the compensation to be paid to any shareholder-employee
after the Merger will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
(q) The Merger is being affected for bona fide business
reasons.
(r) Neither Parent nor Merger Sub will take any position on
any federal, state, or local income or franchise tax return, or take any tax
reporting position, that is inconsistent with the treatment of the Merger as a
reorganization for federal income tax purposes, unless otherwise required by a
"determination" (as defined by Section 1313(a)(1) of the Code) or by a change in
law after the date hereof.
(s) The Merger Agreement (including all exhibits and
attachments thereto) represents the full and complete agreement between Parent,
Merger Sub, the Company, and the Shareholders regarding the Merger, and there
are no other written or oral agreements regarding the Merger.
4.9 Shareholder Vote. Until this Agreement has been terminated in
accordance with its terms, the Shareholders agree to vote all shares of Company
Common Stock held by them in favor of the Merger.
4.10 Registration Rights; NYSE Listing. Parent shall provide to the
Shareholders registration rights pursuant to the terms of a registration rights
agreement (the "Registration Rights Agreement") substantially in the form of
Exhibit A attached hereto. Within 7 days of the Effective Time, Parent shall
apply for the listing, and list, the shares of Parent Common Stock to be issued
pursuant to this Agreement on the New York Stock Exchange.
4.11 Consulting Agreement. As a condition to the closing of the
Merger, John Thompson will enter into a consulting agreement with Parent (the
"Consulting Agreement") substantially in the form of Exhibit B attached hereto.
4.12 Blue Sky Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Parent Common Stock in connection
with the Merger. The Company shall use its best efforts to assist Parent as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Parent
Common Stock in connection with the Merger.
4.13 Control of Operations. Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control or direct the
operations of the Company prior to the
29
Effective Time. Prior to the Effective Time, each of Parent and the Company
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision over its respective operations.
4.14 Employee Matters. At the Effective Time, except for Rocky
Taylor, Megan Suhadolc, Karen Brooks, and Tabitha Fearn who will only be
employed through September 24, 2002, employees of the Company and its
subsidiaries immediately prior to the Effective Time as listed on Schedule 4.14
of the Company Disclosure Schedule will become employees of the Surviving
Corporation.
4.15 Covenant Not to Compete. Each of the Shareholders, severally
and not jointly, agree that for a period of three (3) years from the Effective
Date (the "Non-Compete Period"), he or she shall not, directly or indirectly, as
principal, agent, employee, employer, consultant, stockholder, partner or in any
other individual or representative capacity, engage in any business directly
competitive with the business currently conducted by the Company in the United
States (the "Competitive Business"). Notwithstanding anything to the contrary
contained herein, the Shareholders may, without violating the provisions of this
Section 4.15, purchase and hold up to 5% of any entity whose shares are publicly
traded on NASDAQ or any U.S. stock exchange, whether or not such entity is
engaged in a Competitive Business. Any provision of this Section 4.15 which is
deemed invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the remaining
provisions of this paragraph in such jurisdiction or rendering that or any other
provisions of this Agreement invalid or unenforceable in any other jurisdiction.
If any covenant should be deemed invalid or unenforceable because of its scope,
geographical area or duration, or any combination thereof, such covenant shall
be modified and reformed so that the scope, geographic area and duration of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid and enforceable.
4.16 Best Efforts and Further Assurances. Each of the parties to
this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
Closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
4.17 Landlord Consents. Parent, Company, and Merger Sub, as may be
applicable, shall execute all consents and estoppel certificate, in the form and
substance satisfactory to Parent and the Company, from the landlords with
respect to each of the leases and subleases set forth on Section 2.12 of the
Company Disclosure Schedule as soon as possible following the Effective Time.
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ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. The Company, Parent and Merger
Sub shall have timely obtained from each Governmental Entity all approvals,
waivers and consents, if any, necessary for consummation of or in connection
with the Merger and the several transactions contemplated hereby (each a
"Requisite Regulatory Approval"), including such approvals, waivers and consents
as may be required under the Securities Act and under state blue sky laws.
(c) Consulting Agreement. Parent and John Thompson shall
have entered into the Consulting Agreement.
(d) Continued Listing. Parent's Common Stock shall continue
to be listed and trading on the New York Stock Exchange.
(e) Capitalization. No stock split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Common Stock) reorganization, recapitalization,
reclassification or other like change with respect to Parent Common Stock or
Company Common Stock shall have occurred since the date of this Agreement.
5.2 Conditions to Obligations of Parent and Merger Sub. The
obligation of Parent and Merger Sub to effect the Merger is also subject to
the satisfaction or waiver by Parent and Merger Sub at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date. Parent shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to the foregoing effect.
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(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such effect.
(c) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of the Company following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of the Company.
(e) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of the Company set forth on Section 2.4 of the Company Disclosure
Schedule.
(f) Price of Parent Common Stock. The average closing price
of shares of Parent's Common Stock, as reported by the New York Stock Exchange,
for the fifteen (15) consecutive trading days ending on September 12, 2002 shall
be more than $32.71 per share.
(g) Landlord Consents. The Company shall have provided
Parent a written status report of all consents and estoppel certificates from
the landlord with respect to each of the leases and subleases set forth on
Section 2.12 of the Company Disclosure Schedule.
(h) Termination of 401(k) Plan. The Company shall have
terminated its 401(k) Plan in a manner satisfactory to Parent, which shall be
effective as of September 30, 2002.
5.3 Conditions to the Obligations of Company and Shareholders. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date. The Company shall have received a certificate
signed (i) on behalf of Parent by the Chief Executive Officer and the Vice
President of Finance of Parent and (ii) on behalf of Merger Sub by the President
of Merger Sub, in each case to the foregoing effect.
(b) Performance of Obligations of Parent and Merger Sub.
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by
32
them under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed (i) on behalf of Parent by the Chief
Executive Officer and the Vice President of Finance of Parent and (ii) on behalf
of Merger Sub by the President of Merger Sub, in each case to such effect.
(c) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's business following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of Parent.
(e) Price of Parent Common Stock. The average closing price
of Parent Common Stock, as reported by the New York Stock Exchange, for the
fifteen (15) consecutive trading days ending on September 12, 2002 shall be less
than $22.14 per share.
ARTICLE VI
TERMINATION AND AMENDMENT
6.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual consent of the Company, Parent and Merger Sub
in a written instrument;
(b) by either Parent or the Company upon written notice to
the other party if any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(c) by either Parent or the Company if the Merger shall not
have been consummated on or before October 31, 2002 unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either Parent or the Company if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty (30) days following written notice to the party committing such breach,
or which breach, by its nature, cannot be cured prior to the Closing; or
(e) by either Parent or the Company if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty (30) days following receipt by the
33
breaching party of written notice of such breach from the other party hereto, or
which breach, by its nature, cannot be cured prior to the Closing.
6.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 6.1, this
Agreement shall forthwith become void and have no effect except that (i) the
last sentence of Section 4.2, and each of Sections 4.3, 6.2, 7.1, 7.2, 7.3, 7.4
and 7.7 shall survive any termination of this Agreement and (ii) notwithstanding
anything to the contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
6.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
6.4 Extension; Waiver. At any time prior to the Effective Time,
each of the parties hereto may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
party hereto, (b) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document delivered pursuant hereto
and (c) waive compliance with any of the agreements or conditions of the other
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE VII
GENERAL PROVISIONS
7.1 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
7.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent, to: Quiksilver, Inc.
15202 Graham Street
Huntington Beach, CA 92649
Attention: General Counsel
with a copy to: Hewitt & O'Neil LLP
19900 MacArthur Blvd., Suite 1050
Irvine, CA 92612
Attn: Paul A. Rowe, Esq.
34
and
If to the Company
or Shareholders, to: 2750 Meadow Creek Drive
Park City, Utah 84060
Attention: John Thompson
with a copy to: Snell & Wilmer L.L.P.
15 West South Temple, Suite 1200
Gateway Tower West
Salt Lake City, Utah 84101
Attention: John G. Weston, Esq.
7.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES OTHER THAN THOSE DIRECTING
CALIFORNIA LAW) EXCEPT TO THE EXTENT MANDATORILY GOVERNED BY THE LAWS OF THE
STATE OF UTAH.
7.4 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
7.5 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties hereto; provided, however, that
Merger Sub may assign its rights, interests and obligations hereunder to any
wholly-owned subsidiary of Parent unless such transfer or assignment would in
any way impact the tax-deferred nature of the Merger and transactions
contemplated herein. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and permitted assigns any rights or remedies under
or by reason of this Agreement.
7.6 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
7.7 Entire Agreement. This Agreement (including the Exhibits,
Schedules, the Parent Disclosure Schedule and the Company Disclosure Schedule)
constitutes the entire agreement
35
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
7.8 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[Signature page follows]
36
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first written above.
PARENT:
QUIKSILVER, INC.
By: _______________________________________
Name:
Title:
MERGER SUB:
QS RETAIL, INC.
By: _______________________________________
Name:
Title:
COMPANY:
BEACH STREET, INC.
By: _______________________________________
Name:
Title:
SHAREHOLDERS:
___________________________________________
John Thompson
___________________________________________
Diana Thompson
[SIGNATURE PAGE TO MERGER AGREEMENT]
37
REGISTRATION RIGHTS AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as
of September 17, 2002, by and between Quiksilver, Inc., a Delaware corporation
(the "COMPANY"), and John and Diana Thompson (each an "INVESTOR" and together
the "INVESTORS").
RECITALS
WHEREAS, the Investors were holders of all of the outstanding shares of
the capital stock of Beach Street, Inc., a Utah corporation ("BEACH STREET");
WHEREAS, pursuant to the terms and conditions of that certain Agreement
and Plan of Merger and Reorganization, dated as of September 17, 2002 by and
among the Company, Beach Street, QS Retail, Inc. ("QS RETAIL") and the Investors
(the "MERGER AGREEMENT"), at the Effective Time (as defined in the Merger
Agreement) each Investor became a holder of shares of the common stock of the
Company ("COMMON STOCK"); and
WHEREAS, in connection with entering into the Merger Agreement, the
Company agreed to grant the Investors certain registration rights with respect
to the shares of Common Stock issued to the Investors at the Effective Time
pursuant to the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS
The following terms, as used herein, shall have the following meanings:
"COMMISSION" means the Securities and Exchange Commission.
"DEMAND REGISTRATION RIGHTS" means the rights of the Rights Holders to
have their Registrable Shares registered on the terms and conditions of this
Agreement pursuant to a Registration Statement under the Securities Act that is
filed by the Company as contemplated in Section 2.2 of this Agreement.
"EFFECTIVE TIME" has the meaning set forth in the Merger Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, as they each may, from
time to time, be in effect.
"MERGER" means the merger of Beach Street with and into QS Retail.
A-1
"MERGER SHARES" means the aggregate number of shares of Common Stock
received by the Investors in the Merger pursuant to the Merger Agreement in
exchange for the shares of Beach Street stock (calculated and allocated as
provided in the Merger Agreement) that were outstanding at the Effective Time.
"RIGHTS HOLDERS" means the Investors during such time as they hold
Registrable Shares, and any persons or entities to whom the rights granted under
this Agreement are transferred in accordance with Section 12 hereof.
"REGISTRABLE SHARES" means:
(a) the Merger Shares; and
(b) any other securities issued in respect of the Merger
Shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events);
PROVIDED, HOWEVER, that shares which are Registrable Shares shall cease to be
Registrable Shares:
(i) upon any sale or other transfer of such shares
pursuant to a Registration Statement or Rules 144 or 145 under the Securities
Act or any similar provision then in force; or
(ii) if such shares are capable of being
distributed pursuant to Rule 144(k) under the Securities Act; or
(iii) upon any sale or transfer to a person or
entity to which, pursuant to Section 12 of this Agreement, the rights provided
by this Agreement are not transferable.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement covering only securities proposed to be
issued in exchange for securities or assets of another person or entity or in
connection with an employee benefit plan).
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as they each may, from time to
time, be in effect.
"PIGGY BACK REGISTRATION RIGHTS" means the rights of the Rights Holders
to have their Registrable Shares registered on the terms and conditions of this
Agreement pursuant to a Registration Statement under the Securities Act that is
filed by the Company as contemplated in Subsection 2.1 of this Agreement.
2. REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION. If the Company proposes to file a
Registration Statement for shares of Common Stock to be issued by the Company
other than a Registration Statement (i) on Form S-4 or Form S-8 or any successor
Form thereto or (ii) filed in connection
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with an exchange offer (a "PIGGY BACK REGISTRATION STATEMENT") at any time until
the date that such shares cease to be Registrable Shares then, the Company will,
within 10 business days prior to such filing, give written notice to all Rights
Holders of its intention to do so and, upon the written request of Rights
Holders holding in the aggregate at least a majority of the Registrable Shares
given within twenty (20) days after the Company provides such notice, the
Company shall use its best efforts to cause all Registrable Shares which the
Company has been requested by such Rights Holders to register to be registered
under such Piggy Back Registration Statement; PROVIDED, HOWEVER, that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 2.1 without incurring any liability for doing so to any
Rights Holder. Subject to Section 2.4 below, if any Registrable Shares are to be
registered pursuant to this Section 2.1, then the Company shall provide notice
of such fact to all Rights Holders, and all Rights Holders will then have the
right to register their Registrable Shares under such Piggy Back Registration
Statement. In the event the Company and its underwriters, if any, permit all
eligible Registrable Shares to be registered under Piggy Back Registration
Statement without any Cutback (as hereinafter defined), and such Registration
Statement (i) is declared effective by the Commission and (ii) remains effective
for the Applicable Registration Period (as hereinafter defined), then, the Piggy
Back Registration Rights under this Section 2.1 and the Demand Registration
Rights under Section 2.2 shall terminate at the end of such time period.
2.2 DEMAND REGISTRATION. Subject to Section 2.1, at any time on or
after February 1, 2003, Rights Holders holding in the aggregate at least a
majority of the Registrable Shares may request, in writing, that the Company
effect the registration under the Securities Act of all or any portion of the
Registrable Shares. If the holders initiating the registration intend to
distribute the Registrable Shares by means of an underwriting, they shall so
advise the Company in their request. Upon receipt of any such request, the
Company shall promptly give written notice of such proposed registration to all
Rights Holders. All Rights Holders shall have the right, by giving written
notice to the Company within twenty (20) days after the Company provides its
notice, to elect to participate in such registration. In the event such
registration is underwritten, the right of other Rights Holders to participate
shall be conditioned on such Rights Holders' participation in such underwriting.
Subject to the provisions of Section 2.4, all Rights Holders who have elected to
participate in the registration may participate in the registration up to the
number of Registrable Shares which they hold. Thereupon, the Company shall, as
expeditiously as practicable, use its best efforts to effect the registration of
the amount of Registrable Shares so requested to be registered. If a required
registration pursuant to this Section 2.2 is an underwritten offering, the
Company may select a managing underwriter to administer the offering as long as
such underwriter is of recognized standing.
2.3 NUMBER OF DEMANDS. Except as hereinafter set forth in Section
2.5 or Section 3.3, the Company shall not be required to effect more than one
(1) registration pursuant to Section 2.2 above; PROVIDED, HOWEVER, that no
registration statement filed pursuant to Section 2.2 shall count as a
registration statement that satisfies the Company's registration obligations
under Section 2.2, and such obligations shall continue in full force and effect,
if (i) the Registration Statement is not declared effective by the Commission
within 90 days after the date it was originally filed with the Commission, or
(ii) the Company fails to maintain the effectiveness of the Registration
Statement until the Registrable Shares could be sold pursuant to
A-3
Rules 144 or 145 under the Securities Act or any similar provision then in force
(subject to the provisions herein regarding Suspension Events).
2.4 UNDERWRITER CUTBACK. In connection with any registration under
Section 2.1 or Section 2.2 above involving an underwriting, the Company shall
not be required to include any Registrable Shares in such registration unless
the holders thereof accept the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it (provided that such terms must
be consistent with this Agreement and the terms customarily included in
agreements of this nature for underwritten public offerings). If in the opinion
of the managing underwriter it is appropriate because of marketing factors to
limit the number of Registrable Shares to be included in the offering, then the
Company shall be required to include in the registration only that number of
Registrable Shares, if any, which the managing underwriter believes should be
included therein. If the number of Registrable Shares to be included in the
offering in accordance with the foregoing is less than the total number of
shares which the holders of Registrable Shares have requested to be included
("CUTBACK"), then the holders of Registrable Shares who have requested
registration and other holders of securities entitled to include securities in
such registration shall participate in the registration pro rata based upon
their total ownership of Common Stock. If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
2.5 DELAY OF DEMAND. If at the time of the receipt of a request to
register Registrable Shares pursuant to Section 2.2 above, the Company is
engaged or plans to file a Registration Statement with the Commission within
forty-five (45) days after the time of the request in a registered public
offering or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option, within five (5) business days after the receipt of
the Registration Request, direct that such request be delayed for a period not
in excess of sixty (60) days of the initial request. In the event of any such
delay, the time periods within which the Rights Holders are entitled to exercise
their registration rights under Sections 2.1 and 2.2 shall be extended for a
period of time equal to the duration of such delay.
3. REGISTRATION PROCEDURES
3.1 COMPANY ACTIONS UPON EXERCISE OF REGISTRATION RIGHTS. If and
whenever the Company is required by the provisions of this Agreement to use its
best efforts to effect the registration under the Securities Act of any of the
Registrable Shares, subject to Section 2.5, the Company shall:
(a) as expeditiously as reasonably practicable prepare and
file with the Commission a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become effective as soon as possible thereafter;
(b) as expeditiously as reasonably practicable prepare and
file with the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement
A-4
effective, in the case of a firm commitment underwritten public offering, until
each underwriter has completed the distribution of all securities purchased by
it and, in the case of any other offering, until the earlier of the sale of all
Registrable Shares covered thereby or September 30, 2003 (each, an "APPLICABLE
REGISTRATION PERIOD");
(c) as expeditiously as reasonably practicable furnish to
each selling Rights Holder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as the selling Rights Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by the selling Rights Holder; and
(d) as expeditiously as reasonably practicable use its best
efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the selling Rights Holders shall reasonably request, and do any and all other
acts and things that may be necessary or desirable to enable the selling Rights
Holders to consummate the public sale or other disposition in such states of the
Registrable Shares owned by the selling Rights Holder; PROVIDED, HOWEVER, that
the Company shall not be required in connection with this Section 3.1(d) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
3.2 SUSPENSION EVENTS. Following the effectiveness of a
Registration Statement (and the making of any required filings with any state
securities commissions), the Company may direct the selling Rights Holders to
suspend sales of the Registrable Securities, as provided herein, if one or more
of the following events (each, a "SUSPENSION EVENT") occurs:
(a) an underwritten primary offering by the Company where
the Company is advised by the underwriters for such offering that sale of
Registrable Shares under the Registration Statement would have a material
adverse effect on the primary offering (a "PUBLIC OFFERING SUSPENSION EVENT");
(b) (i) pending negotiations relating to, or
consummation of, a transaction or the occurrence of an event:
(A) that would require additional disclosure
of material information by the Company in the Registration
Statement (or such filings) not otherwise proposed to be
disclosed; or
(B) that renders the Company unable to
comply with Commission requirements; or
(ii) a good faith determination by the Company that
the offering of Registrable Securities would:
(A) materially impede, delay or interfere
with any proposed financing, offer or sale of securities,
acquisition, corporate reorganization or other significant
transaction involving the Company; or
A-5
(B) conflict with material business plans of
the Company in a manner not in the best interests of the
Company (each, a "MATERIAL EVENT SUSPENSION"); or
(iii) if at any time the Company would be required
to obtain audited financial statements not being prepared independently of the
Registration Statement, unless the Rights Holders undertake to pay the Company's
expenses in obtaining the requisite financial statements and an audit is
feasible and can be accomplished with minimal disruption to the Company and its
business ("REQUIRED FINANCIAL DISCLOSURE SUSPENSION").
PROVIDED, HOWEVER, that
(x) in the case of any Public Offering Suspension Event, the
period of suspension shall terminate (A) within forty-five (45) days if the
Registration Statement therefor is not filed with the Commission prior thereto,
(B) if the Registration Statement is filed with the Commission within such 45
day period, but is not declared effective within the succeeding 90 days, on the
earlier of the termination of such 90-day period or the withdrawal of such
Registration Statement by the Company;
(y) in the case of a Material Event Suspension under subsection
(ii), the duration of the suspension shall terminate on the earlier of the
public announcement of such Suspension Event and the expiration of forty-five
(45) days from the commencement of the suspension and, in the case of a Material
Event Suspension under subsection (i), the Company shall use its best efforts to
cause the duration of the suspension to terminate as soon as reasonably
practicable; and
(z) in the case of Required Financial Disclosure Suspension, the
period of suspension shall terminate when the requisite financial statements are
available.
In case of any Public Offering Suspension Event, Material Event Suspension or
Required Financial Disclosure Suspension, the duration of the Applicable
Registration Period of the suspended Registration Statement shall be extended
for a period of time equal to the duration of the suspension.
3.3 AGREEMENT OF RIGHTS HOLDERS. In the case of a Suspension
Event, the Company shall give written notice (a "SUSPENSION NOTICE") to the
selling Rights Holders to suspend sales of the Registrable Shares so that the
Company may correct or update the Registration Statement (or such filings);
PROVIDED, HOWEVER, that such suspension shall continue no longer than the
applicable period of time set forth in Section 3.2 above. The selling Rights
Holders agree that they will not effect any sales of the Registrable Shares
pursuant to such Registration Statement (or such filings) at any time during the
period from the date they received a Suspension Notice from the Company to such
date as of which the Suspension Period shall expire as provided in clauses (x),
(y) and (z) of Section 3.2 above. If so directed by the Company, selling Rights
Holders will deliver to the Company all copies of the prospectus covering the
Registrable Shares held by them at the time of receipt of the Suspension Notice.
The selling Rights Holders may recommence sales of the Registrable Shares
pursuant to the Registration Statement (or such filings) following further
written notice to such effect (an "END OF SUSPENSION NOTICE") from the Company,
which End of Suspension Notice shall be
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accompanied by copies of the supplemented or amended prospectus necessary to
resume such sales.
3.4 INTENTIONALLY OMITTED
3.5 CESSATION OF OFFERS. Upon receipt of any notice (including any
Suspension Notice) from the Company of:
(a) any Suspension Event;
(b) any request by the Commission for amendments or
supplements to a Registration Statement or for additional information;
(c) any amendment or supplement to the Registration
Statement to comply with the requirements of the Securities Act;
(d) the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose;
(e) the representations and warranties of the Company made
in any underwriting agreement relating to the registration ceasing to be true
and correct in any material respect;
(f) the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable Securities
registered in such registration for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose (in which case the cessation
of sales shall pertain only to the applicable jurisdiction);
(g) the happening of any event which makes any statement
made in a Registration Statement or any document incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in any such Registration Statement so that they will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
or
(h) the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate;
the selling Rights Holders shall immediately cease making offers of Registrable
Shares (and shall return all prospectuses) until the Company provides such
selling Rights Holders any required supplemental or amended materials or of
advice in writing that use of the applicable Registration Statement may be
resumed. In such event, the Company will use its reasonable efforts promptly to
correct or supplement the Registration Statement, to obtain the lifting of any
stop order or otherwise to remove the circumstances preventing the continuance
of offers and sales under the Registration Statement, subject to the Company's
right to delay such actions with respect to any Suspension Event. The Company
shall promptly after such correction or supplement provide the selling Rights
Holders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Rights Holders shall be free to resume making offers
of the Registrable Shares. In such event, however, at the time the Rights
Holders are permitted to
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resume making such offers the Applicable Registration Period shall be extended
for a number of days equal to the period during which the Rights Holders were
required to cease selling their Registrable Shares pursuant to this Section 3.4.
4. ALLOCATION OF EXPENSES
The Company will pay all Registration Expenses of any registration
under this Agreement; PROVIDED, HOWEVER, that, except as otherwise provided in
Section 3.2, if a registration is withdrawn at the request of the Rights Holders
requesting such registration (other than as a result of information concerning
material adverse developments in the business or financial condition of the
Company which is made known to the Rights Holders after the date on which such
registration was requested) and if the requesting Rights Holders elect not to
have such registration counted as a registration requested under Section 2, the
requesting Rights Holders shall pay the Registration Expenses of such
registration pro rata in accordance with the number of their Registrable Shares
included in such registration (provided such registration was requested pursuant
to Section 2.2 hereof). For purposes of this Section 4, the term "REGISTRATION
EXPENSES" shall mean all expenses incurred by the Company in complying with this
Agreement, including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees and expenses of counsel for the
Company and the reasonable fees and expenses of one counsel selected by the
selling Rights Holders to represent the selling Rights Holders, state Blue Sky
fees and expenses, and the expense of any special audits incidental to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of any selling Rights Holder's own
counsel, or other out-of-pocket expenses of the Rights Holders or their agents
(other than the counsel selected to represent all selling Rights Holders).
5. INDEMNIFICATION AND CONTRIBUTION
5.1 In the event of any registration under the Securities Act of
any Registrable Shares pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, each underwriter of
such Registrable Shares, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller, underwriter
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action as
and when incurred by them; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such
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Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof; PROVIDED, FURTHER, HOWEVER, that the foregoing indemnity agreement with
respect to any registration statement or prospectus relating to the Registrable
Securities shall not inure to the benefit of any seller in such offering, its
officers, directors or agents, or controlling persons if:
(a) a copy of a prospectus (as then amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) for
such offering was not sent or given by or on behalf of such selling shareholder
to the person ("ASSERTING PERSON") asserting any losses, claims, damages or
liabilities as a result of an untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Securities
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and if such prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities; or
(b) such selling shareholder sold Registrable Securities to
the Asserting Person during the period between the date of a Suspension Notice
and the date of an End of Suspension Notice.
5.2 In the event of any registration under the Securities Act of
any of the Registrable Shares pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; PROVIDED, HOWEVER, that the obligations of such Rights Holders
hereunder shall be limited to an amount equal to the proceeds to each Rights
Holder of Registrable Shares sold in connection with such registration. The
terms of any underwriting agreement entered into by the Company to effect a
registration of the Registrable Securities shall require the underwriter to
indemnify and hold harmless the Company, its officers, directors, controlling
persons and agents and each selling Rights Holder on substantially
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the same basis as that of the indemnification of the Company by each selling
holder as provided in this Section 5.
5.3 Each party entitled to indemnification under this Section 5
("INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification ("INDEMNIFYING PARTY") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5 (except to the extent
such failure to give notice has resulted in increased losses, damages or
liabilities for the Indemnifying Party). The Indemnified Party may participate
in such defense at such party's expense and the Indemnified Party and not the
Indemnifying Party shall bear or be responsible for the expenses thereof,
unless:
(a) the Indemnifying Party and the Indemnified Party shall
have mutually agreed to the retention of such counsel, or
(b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld.
5.4 In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either:
(a) any holder of Registrable Shares exercising rights under
this Agreement, or any controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 5 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case; or
(b) contribution under the Securities Act may be required on
the part of any such selling Rights Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 5;
then, in each such case, the Company and such Rights Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportions as is appropriate
to reflect the relative fault of the Indemnifying Party and Indemnified Parties
in connection with the actions which resulted in such losses, claims,
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damages, liabilities or expenses, as well as any other relevant equitable
considerations; PROVIDED, HOWEVER, that, in any such case:
(i) no such holder will be required to contribute
any amount in excess of the proceeds to it of all Registrable Shares sold by it
pursuant to such Registration Statement; and
(ii) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING
In the event that Registrable Shares are sold pursuant to a Registration
Statement in an underwritten offering, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including, without limitation, customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
7. INFORMATION BY RIGHTS HOLDER
Each Rights Holder including Registrable Shares in any registration
shall furnish to the Company such information regarding such Rights Holder and
the distribution of such Right Holder's Registrable Shares proposed by such
Rights Holder as the Company may reasonably request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
8. INTENTIONALLY OMITTED
9. NO LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
Nothing contained in this Agreement shall prohibit the Company from
granting to any holder or prospective holder of any securities of the Company
registration rights which would allow such holder or prospective holder to
include securities of the Company in any Registration Statement filed by the
Company.
9. RULE 144 REQUIREMENTS
The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(b) to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
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(c) furnish to any holder of Registrable Shares upon
request:
(i) a written statement by the Company as to its
compliance with the requirements of Rule 144(c) under the Securities Act, and
the reporting requirements of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements);
(ii) a copy of the most recent annual or quarterly
report of the Company; and
(iii) such other reports and documents of the
Company as such holder may reasonably request to avail itself of any similar
rule or regulation of the Commission allowing it to sell any such securities
without registration.
11. TERMINATION
All of the Company's obligations to register Registrable Shares under
this Agreement shall terminate upon the last to occur of (i) the sale of all
Registrable Shares by the Rights Holders thereof pursuant to this Agreement or
(ii) the earliest date as of which all Registrable Shares have ceased being
Registrable Shares.
12. TRANSFERS OF RIGHTS
This Agreement, and the rights and obligations of each Rights Holder
hereunder, may only be assigned (including assignment by law) by such Rights
Holder to:
(a) any family member or trust for the benefit of the
Rights Holder, if the Rights Holder is an individual; and
(i) any entity controlled by, controlling or under
common control with the Rights Holder;
PROVIDED that the transferee provides written notice of such assignment to the
Company and agrees in writing to be bound by the terms and conditions hereof.
13. OTHER PUBLIC OFFERINGS
This Agreement is not intended to and shall not preclude the Company
from listing its Common Stock on any reputable non-United States exchange.
14. NOTICES
Each notice relating to this Agreement shall be in writing and shall be
delivered in person, by overnight air carrier, by registered or certified mail,
by facsimile transmission or by email, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice,
provided that notices of a change of address shall be effective only upon
receipt thereof):
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(a) IF TO COMPANY:
Quiksilver, Inc.
15202 Graham Street
Huntington Beach, CA 92649
Attention: General Counsel
WITH A COPY TO:
Hewitt & O'Neil LLP
19900 MacArthur Blvd., Suite 1050
Irvine, CA 92612
Attn: Paul A. Rowe, Esq.
(b) IF TO AN INVESTOR:
2750 Meadow Creek Drive
Park City, Utah 84060
Attention: John Thompson
Unless otherwise specifically provided in this Agreement, a notice
shall be deemed to have been effectively given if mailed by registered or
certified mail to the proper address (with such notice to be effective upon the
earlier of actual receipt or five days after deposit in the mail), if given in
person or by overnight air carrier when delivered in person or by overnight air
carrier, if given by email or telecopy upon receipt if confirmed by return
telecopy, email or telephonic confirmation or otherwise; PROVIDED, HOWEVER, that
no notice shall be deemed received on a day that is not a business day in the
jurisdiction in which notices are to be addressed to such party. Any such notice
shall not be effective until the next business day in such jurisdiction.
15. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated herein and supersedes all previous
oral and written and all contemporaneous oral negotiations, commitments and
understandings.
16. AMENDMENTS AND WAIVERS
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable Shares.
No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
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17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same instrument.
18. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
19. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California without reference to conflict of
laws principles thereof.
20. SECTION HEADINGS
The heading of each section, subsection or other subdivision of this
Agreement is for reference purposes only and shall not limit or control the
meaning thereof.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
COMPANY:
QUIKSILVER, INC.
By: _________________________
Name: _________________________
Title: _________________________
RIGHTS HOLDERS:
________________________________
John Thompson
________________________________
Diana Thompson
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CONSULTING AGREEMENT
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and
entered into as of September 17, 2002, by and between Quiksilver, Inc., a
Delaware corporation (the "Company"), and John Thompson ("Consultant").
R E C I T A L S
A. The Company, through its wholly-owned subsidiary QS
Retail, Inc. ("QS Retail"), is purchasing Beach Street, Inc., a Utah corporation
("Beach Street"), pursuant to an Agreement and Plan of Merger and
Reorganization.
B. Consultant has been a key employee of Beach Street and
the Company believes his services will be of benefit to the Company.
C. The Company desires to engage Consultant to obtain the
benefit of Consultant's special knowledge, experience, background, skills and
abilities, and Consultant desires to accept such engagement, upon the terms and
subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals,
and the mutual representations, agreements and promises contained in this
Agreement, the Company and Consultant agree as follows:
1. Engagement. The Company hereby engages Consultant as a
consultant to render the services and perform the duties described in this
Agreement, and Consultant hereby accepts such engagement, upon the terms and
subject to the conditions set forth herein.
2. Term. The engagement of Consultant by the Company shall
commence on October 1, 2002 and continue for a period of one (1) year (the
"Consulting Period").
3. Services and Duties. During the Consulting Period,
Consultant shall make himself reasonably available, consistent with his past
work schedule with Beach Street, Inc., on an as-requested basis to the Company's
officers, employees and agents, to consult with the Company on issues related to
the consummation and performance of the Merger Agreement between Quiksilver, QS
Retail and Beach Street. The Company shall provide reasonable notice to
Consultant of the services to be performed and the timing of such services. The
Company shall also accommodate the schedule of Consultant in performing the
services.
4. Consulting Fees. For services rendered under this
Agreement during the Consulting Period, Consultant shall receive a consulting
fee of $200,000 payable in equal monthly installments of $16,667 during the
Consulting Period, with each payment being made on the first business day of
each calendar month beginning October 1, 2002.
5. Expenses. The Company will reimburse Consultant for any
costs or expenses incurred by Consultant in rendering the Services; provided
that any such costs or
B-1
expenses have been approved by the Company. Travel and lodging expenses incurred
by Consultant for travel at the request of the Company shall be paid by the
Company.
5. Independent Contractor. Consultant acknowledges and
agrees that Consultant is an independent contractor and nothing contained in
this Agreement shall be construed to create the relationship of employer and
employee or principal and agent between Consultant and the Company. During the
Consulting Period, Consultant shall maintain and pay for all federal, state, and
local disability, workers' compensation, payroll taxes, self-employment
insurance, and income and other taxes, and the Company will not withhold or pay
any such taxes or insurance on behalf of Consultant. During the Consulting
Period, Consultant shall not be entitled to participate in any of the medical,
dental, insurance, or any other benefits provided by the Company for the benefit
of its employees.
6. Non-Disclosure of Confidential Information. Consultant
agrees not to divulge, communicate, use to the detriment of the Company or for
his own benefit or for the benefit of any other person or persons, or misuse in
any way, any confidential information or trade secrets of the Company obtained
or acquired subsequent to the date of this Agreement.
7. Authority. Consultant shall not have authority to act as
an agent of the Company, and he shall not represent the contrary to any person
or entity. Consultant shall not direct the work of any employee of the Company
nor make any management decisions or undertake to commit the Company to any
course of action in relation to third parties.
8. Miscellaneous Provisions.
(a) Notices. Any notice required in connection with
this Agreement shall be given in writing and shall be deemed effective upon
personal delivery or three business days after deposit in the United States
mail, registered or certified, postage prepaid and addressed to the party
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate by
ten (10) days' advance written notice under this Section 8(a) to all other
parties to this Agreement.
(b) Entire Agreement. This Agreement constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof.
(c) Change, Modification, Waiver. No change or
modification of this Agreement shall be valid unless it is in writing and signed
by each of the parties hereto. No waiver of any provision of this Agreement
shall be valid unless it is in writing and signed by the party against whom the
waiver is sought to be enforced.
(d) Assignment and Binding Nature. The services and
duties to be performed by Consultant hereunder are personal and may not be
assigned. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns.
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(e) Attorneys' Fees. In the event any party
institutes any action or proceeding to enforce this Agreement or any provision
hereof, or for damages or equitable relief by reason of any alleged breach of
this Agreement or of any provision hereof, or for a declaration of rights
hereunder, the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(f) Governing Law and Forum. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of Utah,
excluding any choice of law principles which direct the application of the laws
of another jurisdiction. The exclusive forum for the determination of any action
relating to the adjudication of any dispute hereunder shall be either an
appropriate court of said State or that court of the United States which
includes said State within its territorial jurisdiction.
(g) Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"COMPANY"
QUIKSILVER, INC., a Delaware corporation
By: ____________________________________
Its: ___________________________________
Address:15202 Graham Street
Huntington Beach, CA 92649
Attention: Charles S. Exon, Esq.
"CONSULTANT"
________________________________________
John Thompson
Address: 2750 Meadow Creek Drive
Park City, Utah 84060
Attention: John Thompson
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